ACA Financial Reporting 4

Question 1

Under IFRS, how is a subsidiary's pre-acquisition profit treated in the consolidated retained earnings?

Accepted Answer

Excluded — only post-acquisition profits are included in consolidated retained earnings

Answer

On consolidation, only the parent's share of post-acquisition profits of the subsidiary is included in consolidated retained earnings. Pre-acquisition profits form part of the net assets at the acquisition date.

Question 2

Under IAS 21, monetary items denominated in a foreign currency are retranslated at the closing rate. Any exchange difference is recognised in:

Accepted Answer

Profit or loss

Answer

Exchange differences on monetary items (such as foreign currency debtors, creditors, and loans) are recognised in profit or loss in the period they arise, under IAS 21.

Question 3

In a consolidated statement of financial position, goodwill arising on acquisition is classified as:

Accepted Answer

An intangible non-current asset

Answer

Goodwill on acquisition is classified as an intangible non-current asset on the consolidated balance sheet and is subject to annual impairment testing under IFRS 3 / IAS 36.

Question 4

When an entity disposes of a foreign operation, cumulative exchange differences previously recognised in OCI are:

Accepted Answer

Reclassified to profit or loss on disposal

Answer

IAS 21 requires cumulative exchange differences in the translation reserve relating to a foreign operation to be reclassified (recycled) to profit or loss when the operation is disposed of.

Question 5

Under IFRS 3, acquisition-related costs (e.g., legal fees) are:

Accepted Answer

Expensed as incurred in profit or loss

Answer

IFRS 3 requires acquisition-related costs (due diligence, legal, advisory fees) to be expensed as incurred; they are not part of the consideration or goodwill calculation.

ACA ICAEW Practice Test

ACA ICAEW Practice Test

ACA Financial Reporting 4